unit cost measure, although sometimes this is only one element of cost, like
labour cost. U can also be defined as the level of input involved in producing a
unit of output, or the amount of time taken to produce a unit of output.
Further variations of the model relate to how these variables are measured:
cost, for example, is most often measured as the marginal cost of the last unit
produced, but it can also be measured as average cost for the current production
period, or as cumulative average cost since production began. The example
in Table 7.1 relates to Nuprod plc and illustrates the different possibilities.
In practice it is often easier to specify the model with U being the cumulative
average cost (CAC), since this makes it easier to compute other values and make
various types of forecasts. (CAC) is computed as cumulative total cost divided by
cumulative output (CTC/CQ).
Before moving on to the application of the learning curve, it is necessary to
consider one further aspect of specification. Sometimes it is desired to test
whether a reduction in unit cost over time is caused by the learning curve or by
economies of scale; this can be done by specifying a model that includes both
factors. If we call output Q and cumulative output X, with average cost or
marginal cost being U, the model becomes:
U ¼ aQ bXc